Nestlé’s Makes First Move into High-End Retail Coffee Shops
Blue Bottle founder James Freeman
Acquiring a controlling interest in US-based Blue Bottle Coffee is Nestlé’s countermove to a five-year spending spree by JAB Holding Co. The 68% majority stake, for which it paid a reported $425-500 million, leaves intact a management team eager to expand globally. It is Nestlé’s first venture into operating premium coffee shops, a segment securely held by Starbucks.
Nestlé has long ruled the global coffee market with operations in every country and dominated market share in several categories including instant (Nescafe), and its Nespresso premium brand, which launched the single-serve espresso category in 1986. Nestle’s Dolce Gusto is popular in emerging markets as a bridge from instant to ground-roast. The company earned an estimated $15 billion from its three coffee brands in 2016. JAB Holdings is backed by the Reimann’s, a German family of billionaires. JAB quickly gained 16% share of the $77 billion retail coffee market starting in 2012 with the purchase of Douwe Egberts, a time-honored European brand.
The expansion came at Nestle’s expense.
Nestle c.e.o. Mark Schneider said: “this move underlines Nestle’s focus on investing in high-growth categories and acting on consumer trends.”
Nestlé’s Makes First Move into High-End Retail Coffee Shops
Blue Bottle cold brew
Blue Bottle, founded by professional clarinet musician James Freeman in 2002 with $20 million in backing, instantly moved into the storied ranks of third-wave coffee houses. Simple aesthetics and a focus on coffee quality set it apart from the more exuberant Portland-based Stumptown Coffee Roasters and the more mainstream Chicago-based Intelligentsia Coffee, both acquired in 2015 by JAB Holdings following its $1 billion purchase of Peet’s Coffee & Tea and family-friendly Caribou Coffee (for $340 million) in 2012. Freeman’s business prowess was a significant factor in Blue Bottle’s ability to attracted $120 million from investors including U2 singer Bono, Tony Hawk, and the founders of Twitter and Instagram.
The company currently operates 40 cafes with plans to expand to 55 by year-end. The company is based in Oakland, California with shops in New York, Miami, and Washington. It has a growing presence in grocery with a popular cold brew line (in cartons and cans) and a successful shop in Japan.
JAB spent $30 billion buying an assortment of specialty coffee businesses in the U.S. and Europe, spending $13.9 billion for Keurig-Green Mountain, a $5 billion per year manufacturer of the most popular single-serve brewer in North America and a rival to Nestle-owned Nespresso. The latter’s home brewers predominate in Europe and South America. Asia’s fast-growing single-serve segment is up for grabs.
In addition to its coffee shops, JAB now owns Panera Bread, Krispy Kreme, and Einstein Bagels. Nestle will continue to operate a chain of boutiques, largely to promote its Nespresso brand. The expansion will bring to 53 the number of boutiques in the U.S. and Canada. Nestle has options to buy the remaining 32% shares in Blue Bottle held by the founder, investors, and managers.